GameStop Corporation (GME), the biggest video game retailer, reported dismal second-quarter results with a low-single-digit decline in the top line, but a double-digit fall in the bottom line. These were driven by sluggish demand for video game consoles and new software due to the lack of a popular game title release.

However, the company’s share in the new video game market increased by 2.0%.

Earnings per share (EPS) for the quarter under review came in at 23 cents, below the Zacks Consensus Estimate of 29 cents, and plummeted 32.4% year over year from 34 cents reported in the prior-year quarter.

Revenue for the quarter declined 3.7% to $1,738.5 million compared to $1,804.4 million reported in the year ago quarter, following an increase of 9.2% in the first quarter of 2009.
By sales mix – New video game hardware sales fell 20.6% to $301.3 million, whereas sales of new video game software dipped 10.7% to $629.8 million. However, the demand for used video games remains resilient marking a sales growth of 18.9% to $560.8 million.
Despite the challenging environment, management expects new software sales to up tick in the second half of 2009, led by popular title releases such as ‘Call of Duty: Modern Warfare 2,’ ‘Assassin’s Creed 2’ and ‘Halo 3: ODST.’

The uncertainty prevailing in the market as well the slump in consumer demand prompted management to be conservative in its forecast, and consequently it lowered its full-year 2009 earnings outlook. Management now expects EPS for fiscal year 2009 in the range of $2.40 to $2.64, down from $2.83 to $2.93 predicted earlier.

Management expects third quarter EPS in the range of 27 cents to 33 cents, and fourth quarter EPS in the range of $1.47 to $1.65.

Comparable store sales dipped sharply by 14.1% compared to an increase of 20.0% in the prior-year quarter, primarily due to recessionary effects and slump in new console sales. Comps declined by 1.5% in the first quarter of 2009. Wealth destruction and reduced access to the credit markets have resulted in lower consumer discretionary spending.

Comps are expected to decline between 6.0% and 11.0% in the third quarter, and between 1.0% to 7.0% in the fourth quarter of 2009. For the full-year 2009, management expects comps to fall in the range of 4.0% to 8.0%.
Read the full analyst report on “GME”
Zacks Investment Research